A firm with no leverage has an EBIT of $15 million, a corporate tax rate of 20%, an equity value of $200 million and 70 million shares outstanding. The firm plans to borrow $50 million at a cost of 5% per year. You can assume that the debt will stay risk-free. The funds will be used to buy back shares on the market. The new cost of equity after the announcement of this transaction will be

A firm with no leverage has an EBIT of $15 million, a corporate tax rate of 20%, an equity value of $200 million and 70 million shares outstanding. The firm plans to borrow $50 million at a cost of 5% per year. You can assume that the debt will stay risk-free. The funds will be used to buy back shares on the market. The new cost of equity after the announcement of this transaction will be

Explanation:

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